Taking the Republicans to Task: (2) On the Regulation of Business and Labor

In the standard trilogy of core commitments currently being made by Republican presidential candidates, the cutting of taxes and the pruning of government is invariably accompanied by the promise to deregulate business – and indeed to re-regulate labor. The Obama administration stands condemned, not simply for its tax-and-spend propensities, but also for its subordination to organized labor[1] and its associated over-regulation of private enterprise. Setting America free, restoring American prosperity, and defending the American way, is said by all four major Republican presidential candidates to require the same basic policy moves: the lifting of intrusive government controls on American businesses, the exclusion of the federal government from corporate bailouts, and support for right-to-work legislation in one state after another. We have already found weaknesses in the claims about tax cutting.[2] It is time now to examine the validity of the argument that American business will create growth and jobs just as soon as the heavy hand of federal regulation and intervention is lifted from its shoulders.

The claim is certainly center-stage in each of the policy-packages on offer to Republican primary voters.

Romney: “Regulations function as a hidden tax on Americans…and act like a brake on the economy at large.”[3] “The most active regulator is the EPA [which] continues to issue endless new regulations…that drive up costs, hinder investment, and destroy jobs….A Romney administration will act swiftly to tear down the vast edifice of regulations the Obama administration has imposed.”[4]

Gingrich: I will “remove obstacles to job creation imposed by destructive and ineffective regulations, programs and bureaucracies. Steps include: repealing the Sarbanes-Oxley Act…the Community Reinvestment Act…the Dodd-Frank Law….replacing the Environmental Protection Agency with an Environmental Solutions Agency…and modernizing the Food and Drug Administration to get lifesaving medicines and technologies to patients faster.”[5]

Santorum: I will “cut EPA resources for job killing regulations and return focus to commonsense conservation and safe and clean water and air….reduce funding for National Labor Relations Board for extreme positions undermining individual freedom.”[6]

Paul: “Repeal…Dodd-Frank and Sarbanes-Oxley. Mandate REINS-style[7] requirements for thorough congressional review and authorization before implementing any new regulations issued by bureaucrats. President Paul will also cancel all onerous regulations issued by Executive Order.”[8]

Indeed, Mitt Romney is on record as calculating what he terms “the hidden cost of red tape” at $1.75 trillion a year, and is currently promising “structural changes to the federal bureaucracy that ensures economic growth remains front and center when regulatory decisions are made.”[9] Not that that means that he is now the unchallenged leading deregulator of the four. He is not. There is fierce competition between all four candidates for the title of chief de-regulator. Rick Santorum for one has recently made much of his greater consistency in this area of policy – particularly in relation to bailouts. Both he and his main rival opposed the auto-bailout: “crony capitalism on a grand scale” was how Romney recently described it.[10] But that was not tough enough for Rick Santorum: “Governor Romney supported the bailout of Wall Street and decided not to support the bailout of Detroit,” he told a Michigan audience. “My feeling was that we should not support – the government should not be involved in bailouts – period. I think that’s a more consistent position.”[11]

But just because a thing is said, and said consistently, it does not by that process automatically become true. Repetition and truth are not the same things. The case for “freeing” American business of the heavy hand of government regulation and intervention can be challenged – and needs to be challenged – in at least the following ways.

There is positive evidence readily available that carefully-designed business regulations can actually improve business performance, and that strategic federal interventions at moments of crisis can save whole industries from meltdown.[12] Contrary to Newt Gingrich’s claims, for example, the available evidence would suggest that Sarbanes-Oxley has largely worked. It has kept us free from the plethora of accounting frauds that prompted its passage into law: Enron, WorldCom, Tyco, Adelphia and the rest.[13] And the recent controversial EPA air quality rules, a major target of all four Republican presidential candidates, have been widely defended outside Republican circles, and not just by the liberal Economic Policy Institute.[14] The value of the new regulations has been underscored by research establishing a strong positive relationship between a decrease in ozone concentration and an increase in worker productivity.[15] That value has also been defended in Senate Hearings by the Congressional Budget Office: defended there on the grounds that “the number of jobs created through investment to comply with the rules would exceed the number of jobs created due to alternative investment in the absence of the rules.”[16] That immediate job creation is a visible economic gain from well-designed environmental regulations even before other long-term effects come into view. “Clean air regulations, for instance, significantly improve the health of workers and children, resulting in lower health costs and more productive workers.”[17] Nor does the claim stand up to scrutiny that uncertainty about future regulations deters present investment and hiring. Nice try, but sadly for the anti-regulation case, the latest research data indicates that it does not.[18] Certainly the Economic Policy Institute, after a very thorough review of the impact of the existing set of business regulations, concluded that they “do not tend to significantly impede job creation,” and that “to the contrary,… regulations have generally and consistently struck a reasonable balance, with their benefits to health, safety, and well-being far exceeding their costs.”[19] That should not surprise us, because the policies of the Obama administration have been far friendlier to American business than the U.S. Chamber of Commerce is ever likely to admit. Where, after all, would the US auto industry now be if the federal government had not intervened to orchestrate its restructuring (with federal aid) in 2009? Republican candidates may claim that allowing a market-led bankruptcy process to work itself through would have achieved better results, but that is pure conjecture.[20] The candidates cannot, by the nature of the case, demonstrate the validity of that assertion – no matter how regularly they repeat it: and they are stuck (as we are) with the clear reality that the federally-underwritten restructuring initiative did actually work. GM is currently the world’s leading car maker again.

There is also powerful negative evidence against the de-regulation case, evidence of fundamental market-failure by private industries when freed of appropriate public control. Have the Republicans already forgotten the way in which lax regulation of the oil industry preceded the BP oil spill in the Gulf of Mexico?[21] Are these candidates really telling us that a deregulated financial sector will not replicate the behavior which, under Alan Greenspan’s light regulatory touch,[22] created the credit crisis of 2008? It would appear that they are – given their commitment to the immediate repeal of Dodd-Frank.[23] Yet we know – from all the official reports – that it was the lack of proper regulation, not the presence of over-regulation, which allowed systemic financial misbehavior prior to 2008:“widespread failures in financial regulation and supervision proved devastating to the stability of the nation’s financial markets,” was how the Financial Crisis Inquiry Commission Report chose to put it.[24] We know too that Dodd-Frank is widely recognized, outside Republican circles, as in need of strengthening, not of repealing:[25] and that, as Wall Street institutions push back against the detail of the new regulations which Dodd-Frank imposed upon them, the signs are everywhere that financial misbehavior is returning. AIG, for example, is back in the market buying subprime mortgaged-back securities,[26] and high-frequency trading is back in vogue.[27] Indeed the “prices of some distressed bonds backed by subprime house loans” have already “chalked up double-digit percentage gains this year, with one prominent market index rising 14%!”[28] The regulated banking system may have slowly shrunk in scale since 2008, but the less-regulated shadow banking system, by contrast, is nearly back to its pre-crisis peak.[29] Are Republican Party political memories so short that they have forgotten that it was George W. Bush and Henry Paulson who intervened to save Wall Street from total implosion – a Republican team, not a Democratic one? Do these four candidates really want a repeat of the 2008 financial crisis on their watch, or are they simply prepared to say anything now, regardless of its consequences, in their desperate attempt to appeal to an ultra-conservative and ill-informed Republican Party base? You have to wonder.

Robert Sadler of the Consumer Product Safety commission recently wrote this.

What many of our critics really want to do is to stop government from regulating, period. They are invoking cost-benefit analysis as their weapon of choice – and to impose ‘paralysis by analysis.’ Unfortunately, they ignore a vital point: health and safety agencies rarely impose new costs on society when we issue safety regulations. We simply reallocate who pays the costs. Think about it: when we write a safety rule, we do so to eliminate or reduce deaths and injuries…. Those deaths and injuries impose significant costs on consumers…first as household tragedies and then as higher premiums for health insurance…Moreover, product related tragedies almost always result in lost economic productivity. Anyone who insists that regulations necessarily impose new costs on society shouldn’t be taken seriously. The costs are already there, in the form of deaths and injuries – and are often as much a drag on the economy as any safety rule.[30]

Markets can and often do generate negative externalities. All economists are taught that. Unregulated competition between companies can create social costs which it is not in the interest of any one individual company to absorb; and because they do, there is a clear need for public policy to fill the gap. There is a clear need for public policy to prevent those externalities from accumulating, and a clear need for public policy to level the competitive playing field between companies, as they are obliged by sound regulations to absorb the social costs for which they are directly responsible. So for example, unless there are regulations applied to all makers of toys – regulations removing, say, lead from things that children may put in their mouths – then the competitive struggle between firms will inevitably trigger a supply of unsafe toys from at least some manufacturers, to the market-disadvantage of the more socially-responsible producers. Are Republican candidates so wedded to their deregulation crusade as to be in favor of unsafe toys? Some House Republicans, pushing to restrict protections only to toys for children under age 7, clearly are.[31] There can be few clearer examples of ideologically rigidity generating policy blindness than that. Do these legislators not have children or grandchildren of their own? Why take the risk?

Or again, can our rivers really safely be polluted by chemical waste, free of EPA prevention and punishment? Can our climate really keep warming as power plants fill the air with ever greater quantities of carbon dioxide, without some general agreement between governments on ways to slow those emissions down? These days, Republican presidential candidates are obliged to deny even the existence of man-made global warming, let alone the need to reverse it.[32] They are obliged to preach instead the virtues of unregulated private competition. But the climate is the one overarching economic and social resource that is necessarily shared by all of us: the one free resource that, unless regulated now, will be seriously and irreparably depleted by competition between companies and nations. That depletion, unless stopped now, will inevitably leave an impaired environmental legacy for this generation to bequeath to generations yet to come.[33] Republicans are invariably quick to point to debt legacies caused by public spending, and to enthusiastically denounce both the legacy and the spending. Why then are they so slow to recognize climate legacies caused by private spending, and so slow to support regulations to improve that legacy? They are so slow to do this, it would appear, only because ideological purity and short-term political advantage is more important in this debate between Republican presidential contenders than is scientific common sense and long-term public good.

Yet there is one market that these Republican presidential candidates will gladly regulate – the market for labor. There, the zeal of Republicans for the break-up of monopolies and the protection of individual rights apparently knows no bounds. Candidates keen to defend the size and growth of large corporations (particularly financial ones) against the efforts of federal regulators to keep them in check, offer no such defense and advocacy for the size and growth of trade unions. On the contrary, Republican candidate support for legislation weakening public sector collective bargaining rights is unambiguous – support for such legislation in Wisconsin, in Ohio, in Indiana, in Arizona. Even Mitt Romney has come into line.[34] Yet labor markets are unique markets. They are not like markets for inert commodities, or for money. Leaving tins of beans unsold on the shelf, or cash unused in the bank vault, is not the same as leaving people unemployed on the sidelines. In labor markets, people sell more than their labor power. They also surrender a large part of their waking day and their personal autonomy, in return for a modest wage on which to build a proper private life for themselves and their families.[35] As bargainers in the labor market, individual workers have virtually no leverage over the companies that would hire them. Individual companies are free to hire and fire – with marginal impact on their viability but with an enormous impact on the lives of those they employ or dismiss. That asymmetry between company and worker is so great that unless workers can bargain collectively, the gradient of power is inevitably set steeply against them. Trade unions bring that power gradient down just a little.[36] Republican opposition to trade unions helps steepen the gradient against workers still further. With U.S. trade unions now so weak, and U.S. corporations so strong, are these candidates really telling us that the future profitability of American companies requires an even steeper gradient, an even more un-level playing field between employer and employee?[37] With corporate profits already so high, income inequality so great, and wage levels currently so stagnant, are they telling us that this economy needs even more inequality and wage loss? Why talk like this: when weakening unions and cutting wages can only push the economy deeper and deeper into recession, with companies unwilling to invest and hire because of the certainty that the extra products they produce will remain unsold. Deregulating business and re-regulating labor in such an economic climate is not sensible policy: it is class ideology run amok.

Republican presidential candidates like to present themselves as totally business-friendly, and to characterize President Obama as some closet socialist determined to replace American-style free enterprise with European-style welfare capitalism. Leaving aside whether that replacement would or would not be a good thing were it being canvassed, it is quite clear that it is currently not being canvassed. On the contrary, the Obama administration is as equally determined as its Republican opponents to remove unnecessary regulations on American business, a determination not always to the liking of the Democratic Party’s liberal base.[38] But fortunately for that base, what the Administration so far has declined to do is to so buy into the Republican “deregulation” crusade as to write out of the policy-calculus concerns with environmental quality, minimum worker rights and consumer protection. Obama is no European-style social democrat;[39] but at least he has a balanced approach to business regulation of a kind that was once bipartisan, but which Republican ideologues have now fully abandoned. That balance makes his administration infinitely preferable to any likely to be created by the four men left standing in the Republican nomination race.

In Arizona on Wednesday, Mitt Romney told his Republican audience that, by bailing out leading U.S. car companies, “the President gave the companies to the UAW,” and that “giving those companies to the UAW was wrong.”[40] But since the companies given to the UAW in that manner are now profitable and world-beaters again, why was “giving them to the UAW” so wrong? It can only have been wrong if error here is to be measured through the lens of narrow class interest rather than through the lens of broad national prosperity. Mitt Romney is a rich man. Clearly he dislikes strong trade unionism more than he likes an auto industry revitalized by the sacrifices of modestly-paid trade union members. Presumably he prefers industrial power to remain firmly in the hands of CEOs like himself. Those of us with a stronger sense of social justice must beg to differ. If giving industry away to the unions is so effective, perhaps some other industries should be given away in a similar fashion!

[25] Robert Reich, Wall Street is Still out of Control – Obama Should Call for Glass-Steagall and a Breakup of the Big Banks, posted on Huffington post October 26, 2011: available at http://robertreich.org/post/11930107240

[37] “Nor is it the case that labor markets automatically “clear” at socially and economically optimal levels of employment and efficiency unless disturbed by trade union intervention, or that what we face without trade unionism is a level playing field between employer and worker which trade unionism then distorts. We do not. Unregulated labor markets are stacked heavily against labor. There is a basic asymmetry of power between the individual worker and his or her employer that trade unionism attempts to address. There is a power gradient running against labor in capitalist societies unless unions act to pull it back. That retrenchment or redressing has never been more than partial, even when at its greatest (to date) in the labor codes of the Western European welfare states. If American conservatives work to widen the distance on labor rights between the U.S. and Europe, what they are actually arguing for is an intensification of the gradient against American labor. They are implying that rapid economic growth here requires an increase in already unprecedented levels of economic inequality, and a redress of even the modest worker rights enjoyed by organized workers in the United States. Given the existing imbalance of power between management and managed in the contemporary American economy, the call for labor market deregulation is not simply a technical issue. It is a blatant class project. Its purpose, and its consequence, can be nothing other than the amplification of the already excessive authority, wealth and arrogance of American senior management; and needs to be rejected by progressives as such.” (David Coates, Making the Progressive Case, New York: Continuum Books, 2011, p. 51)

A key problem for American unions is that they are allied to a political party many of whom are only marginally less anti-union than the Republicans. The unions need to assert themselves within the Democratic Party – making money conditional on certain policy outcomes, agitating against the selection of strategically important right-wing candidates, being prepared to embarrass the Democratic establishment when they don’t deliver.

In an ideal world the unions would transfer their support to a third party. The Democrats are so saturated with pro-corporate ideology and practice that labour will always be a marginal influence. But unfortunately we are far from that position…

I agree entirely. The top demand has to be the right to unionize, now so extensively threatened. Then,surely, campaigns focused on living wage issues and income distribution. There is just so much to do.

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